Analysis of the Utilities Sector

Here is a quick assesment of the Utilities sector.  PE Ratios are high across the sector.  With the exception of TransAlta (TA.TO) earnings growth is poor (<7%), meaning that PEG Ratios are high (>3).

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TransAlta’s earnings growth is due primarily to a horrible 2012, wherein earnings fell 50%, meaning that things can only get better.  Even if you believe that TransAlta will recover and meet earnings expectations* of $0.89/share in 2013, this still offers only a PE Ratio of 17 (compared with 27 for 2012). Not much of a discount for a stock with a rocky earnings history.  Also, earnings are estimated* to fall again to $0.82/share in 2014.

I’m staying away from TransAlta and from the whole sector.

*Consensus earnings estimates for 2013 and 2014 from TD Waterhouse’s webbroker service.

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